Long and short-term effects of the financial crisis on labour productivity, capital and output

Nicholas Oulton and Maria Sebastia-Barriel ()
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Maria Sebastia-Barriel: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 470, Bank of England working papers from Bank of England

Abstract: The behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The corresponding effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.

Keywords: productivity; financial; banking crisis; recession (search for similar items in EconPapers)
JEL-codes: E23 E32 J24 O47 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2013-01-24
New Economics Papers: this item is included in nep-eff, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Long and Short-Term Effects of the Financial Crisis on Labour Productivity, Capital and Output (2013)
Working Paper: Long and short-term effects of the financial crisis on labour productivity, capital and output (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0470

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